Journal of Industry, Competition and Trade

, Volume 15, Issue 2, pp 105–134 | Cite as

Mergers in Stackelberg Markets with Efficiency Gains

Article

Abstract

This paper analyzes the profitability of mergers and their induced welfare effects in a setting where: (i) firms compete `a la Stackelberg; and (ii) mergers may give rise to efficiency gains. The results contrast with the ones obtained by previous literature where merger’s induced efficiency gains are assumed away. In particular, we find that under certain conditions regarding the cost benefits resulting from mergers, the so called “free-riding problem” is eliminated and mergers are not only profitable but also welfare enhancing, even with linear costs.

Keywords

Mergers Efficiency gains Stackelberg 

JEL Codes

L13 D43 L40 L41 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.FEP-UP, Faculdade de EconomiaUniversidade do PortoPortoPortugal
  2. 2.CEF-UP and CEPRPortoPortugal

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